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Defining the Virtual Business and its Benefits

Contents

  1. The definition of virtual business/business processes
  2. Examples of a Virtual Business and a Virtual Business Process
  3. What are the benefits?
  4. Where do I begin?

Article Description

Virtual business (VB) and virtual business processes (VBP) are terms that are seeing increasingly more press. Before the media and sensational journalists take control of the terms sending them through the usual over-hype, heightened expectations versus reality, then practical implementation cycle, Martha Young and Michael Jude suggest we short circuit the cycle and jump right into the definitions, benefits, and practical implementation examples. Net out the business benefits, so to speak.

Examples of a Virtual Business and a Virtual Business Process

Jet Blue is probably the most frequently cited example of a virtual business. This is an airline that became and retained profitable during a period of time when other airlines where either flirting with bankruptcy or were in the thick of bankruptcy court. How is Jet Blue different from other airlines? They still require planes, pilots, flight attendants, ground crew, airport gates, baggage handlers and a host of other expensive functions that other airlines require. Where are they able to save a nickel to apply, in this case, directly to the top line revenues?

  • Standardization is one key. By using a single airplane type, Jet Blue is able to maintain and support its fleet much more efficiently. Think Henry Ford and interchangeable parts. The fewer parts required, the lower the inventory needs and reduction in warehousing space, the more effective and skilled the maintenance crew and the reduced level of working capital tied up on non-revenue producing assets.

  • Reduction of real estate expenses is one key. Buildings are expensive to acquire and maintain. Yes, there is a tax benefit in terms of depreciation, but the 50 years it takes to fully depreciate a building doesn't begin to address the costs associated with owning or even leasing such properties. This is a pure focus on how to best use working capital. An investment in an intelligent information technology infrastructure to support remote workers and sales agents will consistently be a better use of working capital every time.

  • Distributing the workforce is another key. Jet Blue's sales agents work from their homes. This practice eliminates a wide variety of expenses associated with real estate and employee support functions while concurrently improving productivity and business continuity. Natural and manmade disasters do not impact Jet Blue's sales functions. It's business continuity 100% of the time whether a tornado hits in Oklahoma, a snowstorm in Colorado, or a power outage in the northeast.

Information technology (IT) is probably the most frequently cited example of a virtual business process. Since there are so many functions that make up IT, let's look at a different function instead – contact centers. Contact centers are an important business process because they are the first line of direct communication with a company's customers.

Contact centers can be virtualized and supported internally, or they can be outsourced to a third party. The decision should be driven by the method that proves to be the optimal use of a company's assets (employees, real estate, capital) when the variables are inserted into a business decision model. Without opening the Pandora's box associated with offshore contact centers, the benefits of virtualizing contact centers are substantial.

  • Reduction of real estate expenses is one key. Buildings are expensive to acquire and maintain. Contact centers, while typically small (10-100 agents), still require at least one floor of an office building. Depending on the location of the center, the real estate expenses can be substantial, upwards of $100 per square foot each month in major metropolitan areas like New York, Chicago and San Francisco. Yes, the tax benefit is still there in terms of depreciation, but again, the 50 years it takes to fully depreciate a building doesn't begin to address the costs associated with owning or even leasing such properties. This is a pure focus on how to best use working capital. An investment in an intelligent information technology infrastructure to support call agents will consistently be a better use of working capital every time. Include the cost of commuting to the office (toll ways and bridges) plus monthly parking fees or public transportation passes, and the costs associated with centralizing a workforce quickly add up to big dollars.

  • Distributing the workforce is another key. Like the Jet Blue example above, Proctor and Gamble, Farmer's Insurance and other firms' support their call agents working from home. As noted above, this practice eliminates expenses associated with real estate and employee support functions while concurrently improving productivity and business continuity. The emphasis here is on business continuity.

  • Reduction of employee churn is important. Employee satisfaction studies have shown that employees who are happy in their work environment are less likely to leave for greener pastures. Less employee churn leads to reduction in costs associated with recruitment and training. Retained contact center employees are also more productive in responding to customer issues quickly and effectively, improving customer satisfaction levels. This is a positive impact no matter which way you look at it.

3. What are the benefits? | Next Section Previous Section